DeFi fundamentally emphasizes the shift away from traditional, centralized financial institutions and toward a peer-to-peer finance system.

Platforms for lending and borrowing, as well as tokenized digital money and stablecoins, have been successfully established by the ecosystem. The DeFi environment has grown into a vast network with incorporated financial tools and protocols throughout time.

The Ethereum network is home to the majority of DeFi apps today, but several new open networks are gaining popularity because of their greater speed, scalability, security, and affordability.

Millions of users benefit from DeFi’s development into a full ecosystem of functional applications and protocols. According to DeFiLIama, DeFi ecosystems had assets locked in them worth about $61.7billion as of August 2022, making it one of the public blockchain space’s fastest-growing areas.

However, investors have noted that several projects offer substantial inflationary incentives, which decrease the price of their tokens without providing long-term benefits. The current bear market and the catastrophic collapse of the Terra stablecoin highlighted the shortcomings of the present DeFi ecosystem

This has made people have started to pay more attention to the “real yield” methodology that rewards stakeholders based on the revenue generated recently. 

Real Yield

Real yield is the percentage of a protocol’s revenue that may be earned by staking or locking their governance token. The system distributes revenue to users in the form of a dominant token (ETH/USDC). This is a DeFi 2.0 protocol.

With real yield, users will be sharing in platform revenue and will be paid with the tokens they want. This implies that the greater the revenue generated by a cryptocurrency project, the greater the yield provided to users

Why real Yield?

Real yield is a game changer since it differs from the conventional DeFi of user acquisition, in which customers are provided with exorbitantly inflated, unsustainable, yearly yields (APR) to raise the number of user funds deposited. (TVL)

Although as appealing as these yields look to traders, these rates could only be maintained by “falseyield,” or token emissions. In other words, they require creating new tokens from scratch and paying out rewards for those tokens, they do not desire or cannot grow. Most of them just farm and discard it till it reaches zero.

Since many projects lacked effective mechanisms for building up real value, their tokens dropped to all-time lows once the cryptocurrency market began to show signs of weakening. As long as a token’s price keeps increasing, it supports its APR

In most cases, the price stops increasing and then starts to decline. Due to this, many DeFi users began switching between projects, investing assets in exchange for token rewards, and racing against the clock to sell their assets before they lost value or were sold by everyone else.

Investors become scared away as a result of the tokens’ value decline, hastening the ecosystem’s extinction.

For a project to be considered “Real Yield,” higher inflation emissions/ APR are not necessary. They are projects that embrace the idea of giving value and using accumulating methods that rely on a genuine, consistent, and generally committed user base.

 The ability to attract new users and grow revenue generation over time to compensate token holders is a prerequisite for the growth of cryptocurrency businesses that focus on genuine returns.

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How to Identify Real Yield Projects

• Use online tools: Messari  and Token terminal are the two online tools to examine and research various project KPIs,protocol revenue and other metrics of a project.
• Select the desired token from  Messari, then go to the profile page and do your research. When calculating the project’s overall revenue, figure out how many tokens were issued over the same period that you chose. 
• Use CoinGecko , DeFillama or Dune Analytics as backups in the event that Messari is not giving you the information you need.
• Calculate the project’s real yield:  calculating the real yield of a particular project can reveal whether the project is viable and capable of producing actual results. 
• To determine the overall cost of token emission, multiply the number of tokens issued by the token price, then deduct the result from the total revenue.
• If the project shows potentials after the calculations, market fit is yet another crucial consideration. Regardless of the health of the market or the benefits tokens provide, people must  want to use the protocol.
• The project should employ a secure cryptocurrency like ETH, or stablecoins for rewards. Steer clear of projects that pay in unregulated, wildly unstable, and unsustainable altcoins.

Examples of Real yield Projects

1. GMX: GMX is a decentralized perpetual exchange that permits trades with no price impact and low swap fees. It is a special multi-asset pool that supports trading and generates fees for liquidity providers via market making, swap fees, and leverage trading. It is currently live on Avalanche and Arbitrum.

This exchange is made up of two tokens: $GMX, the utility and governance token, and $GML, the liquidity provider token.

Holders of GMX who stake receive 30% of the revenues made via swaps and leveraged trading, while GLP holders receive the remaining 70%. Additionally, these fees are paid in ETH.

2. UMANI: Umami is a market maker and a source of liquidity that assists partner protocols in quickly scaling their liquidity. With “sustainable, risk-hedged DeFi yield,” it takes pride in what it offers.

Stakers of the $UMAMI token receive a share of protocol revenue from its vault fees, denominated in $ETH. 

By depositing one’s Umami for mUmami, holders can earn 6% APR, denominated in WETH, from Umami’s treasury and protocol revenue. 

3. REDACTED: Redacted is a smart contract suite empowering cash flow for DeFi protocols. It centers around its meta-governance token $BTRFLY, which is backed by a handful of the protocol’s other governance assets. 

BTRFLY can be staked and locked away for 16 to 17-month epochs in return for revenue-locked BTRFLY (rlBTRFLY). This token rewards holders with revenue generated by the Redacted treasury and product ecosystem, paid in ETH.

Final Thoughts

DeFi  projects should generate more revenue than it consumes, just like in any sustainable business strategy. As investors too, you should conduct your research to find out which venture actually produces a return so as not to fall victim to poorly designed protocols. 

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